Vince Sliwoski, autor en Harris Sliwoski LLP Mercados difíciles, abogados audaces Wed, 27 Mar 2024 04:33:38 +0000 es-US por hora 1 https://wordpress.org/?v=6.4.3 https://harris-sliwoski.com/wp-content/uploads/cropped-Harris-Sliwoski-Logo-FinalIcon-White-1-32x32.png Vince Sliwoski, autor en Harris Sliwoski LLP 32 32 Moratoria de licencias de cannabis en Oregón: Ya casi está https://harris-sliwoski.com/cannalawblog/oregon-cannabis-license-moratorium-almost-there/ Lun, 18 Mar 2024 14:00:52 +0000 https://harris-sliwoski.com/?post_type=cannalawblog&p=135318 It looks like a permanent Oregon cannabis license moratorium will finally take effect. I say “looks like” because key contingencies are still in play and, although things look promising, it could also get dicey as of March 31st— or even sooner. In this post, I’ll explain what’s going on with House Bill 4121, which is

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It looks like a permanent Oregon cannabis license moratorium will finally take effect. I say “looks like” because key contingencies are still in play and, although things look promising, it could also get dicey as of March 31st— or even sooner.

In this post, I’ll explain what’s going on with House Bill 4121, which is certainly more than advertised, both in content and in progress. And I’ll explain what it all means for the Oregon cannabis industry.

HB 4121 and the cannabis license moratorium

On February 6th, 2024, I ran our annual legislative forecast and report on the proposed Oregon cannabis laws. We only had one significant cannabis bill in play, which made the 2024 session different than any year going back to 2015. The bill at issue for 2024 is HB 4121.

The enrolled version of HB 4121 is not significantly different than the introduced version previewed in my February 6th blog post. I’ll therefore dispense with another fulsome commentary, except to note that HB 4121 is generally sold as a pro-industry moratorium bill. HB 4121 is much more than that, however– especially when it comes to two big topics: law enforcement and hemp products.

HB 4121 highlights

Law enforcement; inspections

  • Authorizes collaborative mapping of cannabis grow sites, to inform law enforcement where licensed (and therefore, unlicensed) grows are located
  • Requires the Oregon Liquor and Cannabis Commission (OLCC) to work with the Oregon Department of Agriculture (ODA) to develop testing methodology to distinguish marijuana and hemp plants
  • Gives ODA power to require destruction of marijuana plants by hemp growers
  • Allows ODA and OLCC to enter into agreements to allow OLCC to inspect hemp crops
  • Requires ODA to adopt rules to allow law enforcement to accompany ODA on-site inspections
  • Authorized the Governor to call in the National Guard to help ODA and law enforcement with hemp site visits

Hemp product registration

  • Requires OLCC and ODA to establish a registration program for hemp products intended for human or animal consumption or use
  • Requires in- and out-of-state hemp manufacturers, packagers and distributors to pay fees, register in Oregon, submit a boatload of information, and comply with many rules

Marijuana license caps and moratorium

  • Prohibits OLCC from accepting new license applications pretty much forever, due to restrictive, ratio-based formulas tied to population
  • Contains an exception for producers looking to change canopy size, and for research labs
  • Contains an exception for the renewal or “transfer” of an existing license

Minor decoy operations

  • Requires OLCC to develop uniform standards for minor decoy operations
  • Requires OLCC standards to conform to law enforcement standards for minor decoy stings

Temporary permits

  • Requires OLCC to develop a process for applicants to work at a licensed business until they receive a marijuana worker permit, or a denial
  • Allows OLCC to revoke or suspend a permit for actions an individual took while in temporary permit status

Is HB 4121 going to pass? Does it matter if or when the Governor signs?

The bill is probably going to pass, but it matters very much when the Governor signs.

It was a relief to see the OLIS website updated on March 13th, three days after the session ended, showing that the Speaker of the House signed the bill. The Senate President, Rob Wagner, needs to sign next, and then Governor Tina Kotek. At this point, OLIS would normally show that the bill is awaiting signature by Wagner. For whatever reason the website doesn’t reflect this status, as it normally would; but I’m told by drafters of the bill that it’s headed to Wagner’s desk, and then Kotek’s. Both are expected to sign.

If the Governor signs HB 4121, it will become law immediately, based on its text. If the Governor vetoes HB 4121, it will not become law. And if she neither signs nor vetoes, HB 4121 will become law 30 days after its passage, which would be April 12 or thereabouts. That last scenario presents a problem for OLCC and the cannabis industry. This is because the current marijuana license moratorium expires on March 31, 2024.

In a “no sign and no veto” scenario, we could be looking at a gap of 12 days or so when OLCC is forced to take applications. A similar situation occurred back on May 31st, 2018, when OLCC announced a June 15th “pause” of application processing. Over 1,000 new applications flooded the portal in a two-week period. This exacerbated an already significant OLCC bottleneck; and, while many of those applications fell away, others made it through. We had several clients make a pretty penny reselling those landgrab licenses.

On Friday, March 15th, I was told by HB 4121 architects that OLCC has alerted the Governor’s staff to the timing exigency. This informs my comments up top that “things look promising.” If and when HB 4121 passes, though, please remember that we are in for more than a license moratorium. The law enforcement component of this bill is prominent. Further, Oregon is set to move ahead with a restrictive, outlying regime for hemp and hemp-derived products.

UPDATE 03/20/24: Governor Kotek signed HB 4121 on March 20, 2024 and the law took effect on that date.

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Clínicas de ketamina de Oregón: Nuevas Restricciones Potenciales a la Práctica Corporativa de la Medicina https://harris-sliwoski.com/psychlawblog/oregon-ketamine-clinics-new-potential-restrictions-on-corporate-practice-of-medicine/ mar, 27 feb 2024 15:00:18 +0000 https://harris-sliwoski.com/?post_type=psychlawblog&p=135042 Should private equity be involved in health care? If so, in what types of settings? And to what extent? These are baseline considerations around a broad concept referred to as “corporate practice of medicine” (“CPOM”) that state legislatures, agencies, medical licensing boards, courts and attorneys general and grappled with for over a century. The Oregon

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Should private equity be involved in health care? If so, in what types of settings? And to what extent? These are baseline considerations around a broad concept referred to as “corporate practice of medicine” (“CPOM”) that state legislatures, agencies, medical licensing boards, courts and attorneys general and grappled with for over a century. The Oregon legislature is taking a hard look at CPOM today, under proposed House Bill 4130.

Why does this matter to readers of the Psychedelics Law Blog? If this new law passes, it could drastically change the landscape for ketamine clinics and their management services organizations (“MSOs”) across the state.

CPOM and Oregon

According to the American Medical Association, the CPOM doctrine prohibits corporations from practicing medicine, or employing a physician to provide professional medical services. CPOM rules are based on the policy that allowing corporations to practice medicine would result in the commercialization of health care. A corporation’s duties and obligations are to its shareholders, not individuals seeking health care, and those duties could conflict with the interests of patients and providers.

Over 30 states prohibit CPOM with broad exceptions, such as for professional corporations (“PCs”), and for employment of physicians by certain health care entities. HB 4130 would make Oregon one of the most restrictive CPOM states. Still, HB 4130’s strictest ownership and control provisions would not apply to hospitals, health systems and nursing homes, which have been largely exempt from Oregon CPOM rules since 1974.

Health care administration has changed considerably in the past 50 years, including with the advent of MSOs. Those organizations are addressed throughout HB 4130, in conjunction with restrictions on ownership and control of health care providers by non-physicians. HB 4130 also focuses on removing competition strictures from physicians and doctors– including in hospitals, health systems and nursing homes.

Before diving into this bill, it’s important to understand that currently, Oregon law requires that locally licensed physicians hold a majority ownership stake in a PC organized to practice medicine (these PCs are generally clinics, or private practices providing medical care). Oregon law also requires that locally licensed physicians compromise a majority of the directors of any such business. HB 4121 would apply these same standards to LLCs and LLPs that are organized for a medical purpose, or as holding entities.

CPOM under HB 4130

Here are some of the bill’s other provisions, condensed in parts but pulled directly from a Staff Measure Summary:

Requires all officers of a PC, except the secretary and treasurer, to be licensees of the Oregon Medical Board or Oregon State Board of Nursing. Defines “MSO”. Prohibits a shareholder, director, or officer of a corporation organized for the purpose of practicing medicine (“PC”) from taking specified actions in relation to an MSO that the PC has a contract with, including:

  • Owning or controlling shares in both the professional corporation and MSO
  • Setting the terms of employment of a physician the PC employs
  • Removing a director or officer except by majority vote of shareholders with specified exceptions for fiduciary duty violations, Oregon Medical Board disciplinary actions, and fraud
  • Relinquishing control over assets, business operation, or clinical practices or decisions
  • Giving a proxy to vote the shares of the PC

Exempts shareholders who have control over less than five percent of shares or whose share ownership is incidental. Exempts specified professional corporations, including:

  • Corporations solely and exclusively engaged in telemedicine
  • PACE organizations
  • Mental health or substance use disorder crisis line providers
  • Urban Indian health programs
  • Recipients of a Tribal Behavioral Health or Native Connections program grant
  • Specified behavioral health care providers
  • Hospitals

Permits the Oregon Health Authority (“OHA”) to submit to the Secretary of State (“SOS”) a complaint regarding violation of corporate practice of medicine laws. Specifies SOS disciplinary authority for violations of corporate practice of medicine laws. Allows a PC up to seven years to remove grounds for SOS discipline. Permits OHA to apply to circuit court for order to stay a merger or acquisition that OHA determines will violate corporate practice of medicine standards. Requires company organized for a medical purpose and holding entity to comply with CPOM requirements for professional corporations. Makes noncompetition, nondisclosure, and nondisparagement agreements void and unenforceable with specified exceptions.

What’s next? And what about ketamine and psilocybin providers?

Obviously, there is a lot going on here, and the bill could still evolve. To date, HB 4130 is moving very quickly– as it must in this short legislative session. As of February 26, the bill has passed through the House and sits in the Senate Committee on Health Care. If HB 4130 clears the Senate on or before March 10, it would become law unless vetoed by Governor Kotek within 30 days. Businesses would then have a seven-year runway to come into compliance.

So, why am I writing about this today? As a law firm with a longstanding ketamine practice group, we have worked through CPOM issues for physicians, clinic operators, managers, investors and others in various states. See e.g.:

Ketamine clinics are subject to many complex federal and state-level rules. CPOM guardrails are primary among them, and inform the fundamental viability of many proposed ketamine clinic structures. This keeps coming up for us, especially with broad interest from alternative health care providers, MSOs and private equity in the ketamine space.

We also work with quite a few Oregon psilocybin businesses. Like medical practices, these OHA licensees are also subject to “majority ownership” requirements. But the psilocybin ownership strictures center on Oregon “residents” and not physicians, and they expire in 2025. Moreover, the psilocybin program is a decidedly non-medical model, despite common misconceptions. In all, psilocybin licensees should not be affected if HB 4130 passes.

We will continue to track HB 4130 closely, and update this blog post with information as to whether the bill passes or fails. For now, let’s hope Oregon is able to strike the right balance with putting patient interests first, protecting independent clinics, and accommodating the need for investment and innovation that comes with a non-single-payer health care system.

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Reflexiones sobre THCA, ventas interestatales.... y Oregón https://harris-sliwoski.com/cannalawblog/thca-oregon-and-interstate-sales/ Fri, 16 Feb 2024 15:00:09 +0000 https://harris-sliwoski.com/?post_type=cannalawblog&p=134803 Friend of the firm Andrew DeWeese published a recent LinkedIn post on Oregon’s outlying stance on THCA the other day, and the priorities of local industry advocates. I wanted to highlight that post and discuss today– it’s a compelling post and I have all sorts of thoughts about it. Here it is: Let’s break it

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Friend of the firm Andrew DeWeese published a recent LinkedIn post on Oregon’s outlying stance on THCA the other day, and the priorities of local industry advocates. I wanted to highlight that post and discuss today– it’s a compelling post and I have all sorts of thoughts about it. Here it is:

Let’s break it down.

“THCA flower is legal under federal law”

Maybe. This is something we have thought a lot about at the firm, privately and publicly. My colleague Griffen Thorne published a sensationally titled piece on this last summer: So Long for THCA Products. Griffen’s article is just one of many parsing the language of the 2018 Farm Bill and a 2023 DEA letter on the topic. See also: THCA and the DEA: Rod Breaks Down the Latest News from Rod Kight, another attorney prominent in the space.

You probably don’t want to read all of that today. So here’s the answer I might give my aunt if she asked whether THCA flower is legal. I would say: “Someone over at DEA wrote a letter last year indicating that it’s not. But DEA is not a court and DEA hasn’t made a rule, either. And DEA often loses in court. Certain learned people also disagree with DEA, which isn’t doing much about THCA flower anyway. It’s on sale all over! Finally, Auntie, the law might change this fall when we hopefully get a new Farm Bill.”

People don’t like answers like that (“lawyer answers”) because lawyers tend to hedge and hate being pinned. Pin me down, though, and I will opine that I don’t think THCA is legal under federal law. THCA converts to Delta-9 THC when heat is applied, and I don’t believe Congress intended to legalize an intoxicating substance when writing the 2018 Farm Bill. I will also acknowledge that this is one of the more muddled areas of controlled substances law. It’s up there with the Federal Analogue Act, which arguably requires that chocolate must be recognized as the legal equivalent of heroin. These statutes are so miserable.

From a practical perspective, with respect to THCA, I think the three most important considerations are: a) there has been no federal enforcement to speak of with respect to THCA flower or products; b) federal law will likely change this year, because again, I don’t think Congress intended to legalize gas station weed back in 2018; and c) states have weighed in. Which brings us to the next statement.

“But not in Oregon”

Andrew is correct that Oregon is one of few states to require a total THC concentration testing standard. When Oregon adopted that standard in 2019, it seemed to fly under the radar, though we did our best to publicize it here on the blog. Almost five years later, I’m not sure how well understood this is. I still get frequent requests for representation from Oregon sellers of THCA products, and I must decline to represent those sellers given the lack of any safe harbor under Oregon’s lawyer ethics rules (at least in my view).

But it’s not just state testing requirements people need to understand. Several states outright prohibit products containing THCA from being bought, sold or consumed within their borders. This means that anyone trafficking in THCA products must pay very close attention to state and local law, in addition to getting comfortable with the problematic federal paradigm. Too many THCA advocates simply say “it’s legal federally” and turn off their brains. Which can be a regrettable course of action when you’re pulled over by highway patrol and your truck smells like weed… certificates of analysis, permits, etc. notwithstanding.

“Oregon could essentially have interstate commerce in weed, now”

To achieve parity with THCA friendly states, yes, Oregon would need to change its regulatory structure– starting with a repeal of the total THC concentration testing standard. But Oregon will not. This isn’t because the state lacks interest in interstate commerce solutions for the cannabis industry. Oregon was the first state to sign a marijuana export bill back in 2019. More recently, the OLCC seemed to support to an interstate commerce proposal on marijuana seeds and intoxicating hemp products.

So why don’t the doors open for THCA? The short answer is the two efforts I mentioned just above are on the marijuana side of the equation. Hemp has been hollowed out in Oregon, as I explained in in December. To that end, and in response to the LinkedIn post mentioned at the top of this article, cannabis economist Beau Whitney offered these dismal statistics:

Oregon hemp acres licensed (not necessarily planted or harvested)
2019: 64,142
2023: 2,417
2024: 55 (so far)

We don’t have much hemp being planted in the state anymore and hence, we don’t have much of a hemp lobby. All legislative conversations around hemp for the last several years have centered on local enforcement against THC growers masquerading as hemp licensees. And even when hemp was riding high five years ago, we somehow ended up with the total THC concentration testing standard.

“Instead the only cannabis bill in the short session is a license moratorium and a bunch more enforcement”

Fair statement. The reference here is to House Bill 4121, which has been moving briskly through the legislature and is headed for the ways and means committee. For more information, I gave a detailed tour of HB 4121 last week.

OLCC licensees seem bent on dealing with market saturation issues and protecting the value of their licenses. And for good measure: no one wants to deal with excessive competition, and the state treats these licenses like fungible commodities on a viable, secondary market. If OLCC starts issuing new licenses, the value of previously issued licenses drops from $20K or $30K or $40K to $0.

We’re now down to just one trade organization in Oregon, CIAO, whose board chair is on payroll for the state’s largest retailer. Big retailers have always pushed cannabis policy in Oregon, for better or worse; but this is one where everyone probably agrees. And to be honest, there just isn’t much energy for anything else nowadays. Especially the right to grow intoxicating hemp products of questionable legality under federal law.

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Cannabis de Oregón 2024: Previsión legislativa e informe https://harris-sliwoski.com/cannalawblog/oregon-cannabis-2024-legislative-forecast-and-report/ Tue, 06 Feb 2024 15:00:44 +0000 https://harris-sliwoski.com/?post_type=cannalawblog&p=134686 The 2024 Oregon legislative session kicked off yesterday. It’s a short session this year, with adjournment sine die set for March 10. Whatever hasn’t passed by that day will be scuttled to 2025, or fade to black entirely. This year, we have but one cannabis bill to cover– unless you count HB 4093, which would

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The 2024 Oregon legislative session kicked off yesterday. It’s a short session this year, with adjournment sine die set for March 10. Whatever hasn’t passed by that day will be scuttled to 2025, or fade to black entirely.

This year, we have but one cannabis bill to cover– unless you count HB 4093, which would require at least one Oregon Liquor and Cannabis Commission (OLCC) commissioner to have a public health background. This stuffy proposal has been batted around in prior sessions but failed to become law.

Anyway, the cannabis bill for 2024 is HB 4121. It’s topically broad. HB 4121 was drafted by legislative cannabis guru Rob Bovett, who no longer works for the counties but continues to perform a valuable public service in drafting Oregon’s cannabis laws– as he has since forever. Rob tells me his marching orders for 2024 were to submit something noncontroversial, bipartisan and bi-cameral. HB 4093 is generally that (see Rob’s testimony here).

Why does the bill have to be noncontroversial, etc.? I explained in my annual “State of the State” post in December that:

The first big task for CIAO [Oregon’s newly consolidated cannabis trade group] should arise in the 2024 legislative session. The Oregon legislature seems less keen on dealing with cannabis issues over the past few sessions, than historically. Given collateral damage to OCA from the La Mota scandal and all of the oxygen being taken up by Measure 110 scrutiny, CIAO will have its work cut out come February.

Yes, Measure 110 dialogue around drug recriminalization is going to dominate this session, alongside housing issues. Cannabis is either an afterthought or a third rail, depending on who you ask. With that brief orientation, below is what HB 4121 would do.

Enforcement collaboration (Sections 1 to 6)

In 2021, Oregon passed a law known as HB 3000. I explained at the time that HB 3000 “did a million things.” HB 4121 would carry several of them forward, including: 1) authorizing collaborative mapping of grow sites to inform law enforcement where licensed grow sites are located; 2) setting rules to distinguish marijuana from hemp; 3) granting the Oregon Department of Agriculture (ODA) authority to order destruction of plants “presumptively considered to be marijuana” under the aforesaid rules; 4) allowing ODA and OLCC to collaboratively inspect hemp crops, alongside the National Guard if the Governor so orders. I’m told the Southern Oregon sheriffs would like to see these provisions pass, especially.

Hemp product registration and labeling (Sections 7 to 14)

This topic also arises out of HB 3000, by way of a task force. And it’s a rehash of last year’s HB 3049, which was waylaid and died in the ways and means committee (my coverage here).

These sections create a registration system and labeling standards for hemp products containing cannabinoids that are intended for human or animal consumption. To be clear, we are talking about products that adults in Oregon could buy in places like gas stations and grocery stores. Registration wouldn’t be required for fiber, grain products or topical products.

Some makers of hemp-derived cannabinoids are going to support these sections, while others will be strongly opposed. The FDA isn’t enforcing this type of labeling and certain companies may risk losing shelf space at Whole Foods and elsewhere if forced to elaborate on the composition of certain products.

Marijuana license caps and moratorium (sections 15 to 20)

This is a big deal! And interesting. Oregon has been limping along with temporary licensing “pauses” and moratoria for almost six years. The most recent of these came via HB 4016, which expanded a marijuana licensing moratorium to all licensing types except testing labs; and which remains in effect until March 31 of this year.

Industry is now proposing to instate a permanent, hard cap on the number of licenses, while grandfathering anyone already in the system. The caps would be tied to population metrics, as follows:

  • For production and retail licenses, “not more than one active license per 7,500 residents in the state who are 21 years of age or older.”
  • For processor and wholesaler licenses, “not more than one active license per 12,500 residents in the state who are 21 years or older.”

By my math, if this language holds Oregon would not issue new cannabis licenses in most or all of these categories, forever. For example: we have roughly 2,429,348 Oregonians at least 21 years of age. This means the cap on retail licenses going forward would be 324. We currently have 863 of them.

It’s worth noting that OLCC currently caps the number of liquor stores on a population schedule. For liquor sales, I am told it is 12,000 people per store. This is an imperfect analogue for marijuana, because unlike with liquor, OLCC doesn’t own the product and sell it through to retail. Also, on the liquor side, the “cap” is implemented under a seemingly discretionary administrative rule. But the liquor regime is probably where the notion came from.

Exactly how the cannabis industry came up with these ratios is a story for another day. Let’s see if Oregon finally caps licenses once and for all. If it happens, OLCC may finally have to get into rulemaking around license reassignment concepting. Alternatively, if this session implodes due to another Republican walk-out, or if HB 4016 is otherwise allowed to sunset, prepare to watch the secondary market for cannabis license sales crater. PRO TIP: anyone looking to “buy a license” right now might be wise to wait a minute.

Minor decoy operations (Sections 21 to 23)

These sections provide OLCC authority to conduct minor decoy operations in other locales than licensed dispensaries. Under these provisions, OLCC could place young ’uns in places like smoke shops and other purveyors of high-THC, hemp-derived items. The Commission would also be required to develop and promote uniform standards for the stings.

Temporary worker permits (Sections 24 to 31)

Here, the bill would allow applicants for marijuana worker permits to start work while their applications are being processed. OLCC allows this on the liquor side. Currently, OLCC is caught up on application processing for marijuana workers, but temporary permits could prove useful sometime down the line.

Conclusion

March 10 will be here before we know it, and testimony on HB 4131 is rolling in fast. When I logged on this afternoon I found six or so submissions. This evening, the number was up over 40.

It’s unlikely we’ll see any other bills proposed this session on the cannabis side given other legislative priorities in 2024, and given the normal limitations of a five-week session. So grab your popcorn and enjoy. I’ll check in at the end of the session or if anything especially interesting happens prior.

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Calificación de los candidatos presidenciales sobre el cannabis: Nikki Haley https://harris-sliwoski.com/cannalawblog/grading-the-presidential-candidates-on-cannabis-nikki-haley/ Fri, 26 Jan 2024 15:00:40 +0000 https://harris-sliwoski.com/?post_type=cannalawblog&p=134490 Welcome to part three in our series on cannabis and those who wish to lead us. In the first two posts, we covered Joe Biden (we gave him a “C”) and Ron DeSantis (R.I.P.; we gave him a “C+”). Today’s subject is Republican candidate Nikki Haley. She’s still around as of this writing and I’m

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Welcome to part three in our series on cannabis and those who wish to lead us. In the first two posts, we covered Joe Biden (we gave him a “C”) and Ron DeSantis (R.I.P.; we gave him a “C+”). Today’s subject is Republican candidate Nikki Haley. She’s still around as of this writing and I’m giving her a B-.

Overall Grade: B-

Haley’s position on cannabis is that she would “let the states decide.” At the federal level, she agrees with the recent Health and Human Services (HHS) re-scheduling recommendation, observing that she’d “go with the scientists” and that cannabis “obviously” doesn’t belong in the same category as heroin. Haley said these anodyne things recently at town hall events; Marijuana Moment has a good write-up here.

That story also mentions that Haley didn’t act or opine on cannabis while serving as a United Nations ambassador under Donald Trump (makes sense), and that she “doesn’t have an especially extensive cannabis background.” Haley did, however, sign a 2014 bill as South Carolina Governor to legalize hemp. For that I tip my hat.

In my view, Haley is sitting in a pretty typical Republican spot for 2024, which can be summarized as “states’ rights are best for marijuana” but “it’s not a federal priority.” To wit, Haley doesn’t appear to have commented on any of the federal legislative proposals floating around for cannabis reform. Her campaign website is also silent on cannabis policy (and every other policy).

One proposal that may square with Haley’s statements on cannabis is the Strengthening the Tenth Amendment Through Entrusting State (STATES) 2.0 Act. That revamped bill would undo federal criminalization of people acting in compliance with state cannabis programs, or Indian tribal law. On the other hand, maybe STATES 2.0 is a bit much for Haley, in that it would authorize interstate marijuana commerce. I don’t know.

Most likely, Haley hasn’t thought all that hard about cannabis policy. And isn’t very interested in the topic.

“Let the states decide” isn’t helping

I take issue with “let the states decide” politicians who also fail to promote a floor of federal legalization. Don’t get me wrong: it’s all well and good to let the states run their own regulatory experiments, independent of federal law (we call this “federalism”); but things get awkward when states legalize things that are prohibited under federal law (i.e. marijuana, whether on Schedule I or III). A state-licensed marijuana business simply cannot comply with the federal Controlled Substance Act.

Setting a federal floor would work for cannabis and is a common legislative approach. You see it with everything from the minimum wage to environmental legislation. In the former example, Congress decrees (apparently without shame) that “it’s prohibited to pay someone less than $7.25 per hour.” However, states are allowed to set higher minimums. We need this for cannabis. The federal government needs to say “cannabis is not prohibited under federal law” or “cannabis is not prohibited under federal law, but it is subject to the foregoing requirements.” And then allow states to regulate the plant as they see fit (where the states are not “preempted”).

In the very big picture, I commented in a recent webinar that, based on my experience lawyering in the cannabis space for way too long:

I’m coming around to a really basic, simple theory of cannabis being unregulable at the state level, given the state of federal law… I just think it’s impossible. I think these states are set up for failure and I can’t see any one state that I can honestly say is succeeding in the way that we’d like them to succeed.

Change needs to come from the top.

“I’ll go with the scientists” is a punt, not policy

I like science and the scientists, don’t get me wrong. In the context of cannabis, though, “follow the science” is too often a shibboleth for lazy thinkers. Here’s why: our federal legislators and policymakers don’t go with the science on other intoxicating (and harmful, and addictive) substances, starting with alcohol. If they did, alcohol would also be subject to federal prohibition. But it’s not; and policymakers are correct to have learned, and continue to understand, that society simply won’t tolerate that.

Yes, policymakers should listen to scientists and weight their findings well. But science isn’t policy, and there is a very good reason scientists work in labs and not the Capitol Campus. Science is a discipline of narrow considerations: the study of material phenomena. Just because the science may suggest that marijuana belongs on Schedule III, doesn’t mean politicians should ignore all other social implications of placing marijuana there. It wasn’t science that brought us to the Controlled Substances Act and its silly schedules, after all.

It is the purview and responsibility of policymakers to think big picture. Listen to the scientists, and then consider other critical factors to craft good policy.

Wrapping up with Nikki Haley

When a politician takes Nikki Haley’s position – i.e., “leaving things to the states”, or even “to scientists”– those politicians are ignoring a policy failure writ large across the country. We have regressive outcomes on everything from ongoing criminalization, to depressed and distorted state-level cannabis markets, to the epidemic of gas station weed from hemp. This is a sprawling policy failure of the federal government’s own making; states and scientists cannot fix it.

Still, I’m giving Nikki Haley a “B-“. She gets that grade because she: 1) is a Republican 2) doesn’t seem to have bad intentions 3) once signed a hemp bill and 4) is unemployed and can’t do much about cannabis anyway. Yes, I’m grading on a curve. It’s also unlikely that Haley will become President this fall. That’s probably just as well for cannabis advocates.

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Día de MLK: Cannabis y derechos civiles https://harris-sliwoski.com/cannalawblog/mlk-day-cannabis-and-civil-rights-4/ Mon, 15 Jan 2024 15:00:46 +0000 https://harris-sliwoski.com/?post_type=cannalawblog&p=134359 Last fall, I came across a memorable opinion piece by Steven King (paywalled), a guy who has written some 10 million words in his career. This particular piece was four short paragraphs, however. Seven sentences. It addressed mass shootings in the United States and it was uncharacteristically short because King concluded that the problem, though

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Last fall, I came across a memorable opinion piece by Steven King (paywalled), a guy who has written some 10 million words in his career. This particular piece was four short paragraphs, however. Seven sentences. It addressed mass shootings in the United States and it was uncharacteristically short because King concluded that the problem, though devastating, was unsolvable. “There is nothing more to say,” he concluded.

I thought of that essay this morning. I’ve been writing an MLK Day post on this blog for seven years running. I am not the best person to write on that topic, demographically, but it’s certainly something I’ve studied. The theme of my posts is that cannabis is a civil rights issue. Each year, I have demonstrated with facts (upon facts upon facts) that the War on Drugs continues in insidious ways; and I’ve looked for signs of improvement. Little has changed, however. When it has, it’s often been for the worse.

So I will keep this blog post to four paragraphs today. Suffice it to say that according to The Man, marijuana related arrests topped 227,000 in 2022, which is an increase from 2021. Three things to note: 1) that number is almost certainly underreported, because many law enforcement agencies don’t report data to the FBI; 2) 92% of these arrests were for simple possession, which is just awful; and 3) worst of all, an outsized number of those arrests were certainly of minorities and people of color– just like every other year I’ve dug into this.

More states continue to legalize cannabis and lots of people make a living in the cannabis industry. Many of them not only possess cannabis, but “traffic” at a large scale under state authority. Yet, we are going backwards on civil rights and cannabis overall. How can this be? I feel out of things to say.

______________________________________________________

Facts upon facts:

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Calificación de los candidatos presidenciales en materia de cannabis: Joe Biden https://harris-sliwoski.com/cannalawblog/grading-the-presidential-candidates-on-cannabis-joe-biden/ Lun, 08 Ene 2024 15:00:39 +0000 https://harris-sliwoski.com/?post_type=cannalawblog&p=134271 Gentle readers, once again we find ourselves in a Presidential election year. Feel free to join me in tuning out the deluge of reporting and social media as to matters you cannot control in the slightest, and which are mostly negative and discouraging. Except for this blog post, which I promise will be great. In

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Gentle readers, once again we find ourselves in a Presidential election year. Feel free to join me in tuning out the deluge of reporting and social media as to matters you cannot control in the slightest, and which are mostly negative and discouraging.

Except for this blog post, which I promise will be great. In each presidential election cycle, the Canna Law Blog runs a classy series of posts grading the candidates as to their positions on cannabis. Four years ago, Donald Trump was President, which means we graded Trump and many Democrats. This time, it’s the opposite. We will grade President Biden and his Republican challengers, including Donald Trump. But today we start with #46, Joseph Robinette Biden Jr. (Hunter’s dad).

Overall Grade: C

“C” is a middling grade, obviously, but it’s progress for Biden. Last time around, we (one of our law clerks) gave him a “D.” He certainly earned it. Biden was the only viable Democratic candidate who opposed cannabis legalization in 2020. In the decades before that, he was entirely bass-ackwards on things, being described by knowledgeable persons as “the architect, in all ways, of the war on drugs.” Yuck.

Biden’s positions on cannabis today

Things have changed a bit in the past quadrennium. The President has not pivoted as dramatically as Vice President Harris claims to have done on marijuana reform, but we’ve seen some progress. Exactly how good or bad Biden has been is a source of much debate. The people who argue that Biden is “responsible for the most significant marijuana reform in American history”, and those who send him thank you notes, are right. The people who argue that Biden hasn’t done nearly enough on marijuana reform are also right. I’m mostly one of the latter, correct people.

Let’s take a quick look at what Biden has and hasn’t done so far.

  1. October 2022 pardons

In October of 2022, Biden pardoned 6,500 people previously convicted of “simple possession” of marijuana under federal law. I observed:

The pardons don’t release anyone from prison, as no one was in federal prison for this dubious crime. Everyone serving time for simple possession of cannabis is in state prison for violations of state (and not federal) controlled substances laws.

It’s also important to understand that nearly everyone arrested and prosecuted for federal cannabis crimes is nailed for trafficking (i.e., distribution and/or intent to distribute). Biden didn’t pardon any of these people, including the nonviolent traffickers. I’m guessing none of them will ever see a presidential pardon. Their only hope is through proposed legislation like the MORE Act or the CAOA, which would make non-violent cannabis crimes expungable, automatically or otherwise.

Finally, the pardon is also just a “pardon.” It doesn’t expunge the underlying convictions at issue, or clear anyone’s record. In many ways, the 6,500 pardonees find themselves in a similar spot today as prior to October 5. They are still walking around as convicted criminals of record, and will be for the foreseeable future.

I stand by the critique.

  1. October 2022 exhortations to state Governors

Concurrent with his feeble pardons, Biden urged all state Governors to issue state-level pardons for state-level cannabis crimes. I was underwhelmed with that effort too, explaining again that the pardons were not expungements, and that the crimes included simple possession, only. I also wrote:

Rather than direct his attention at state-level actors, however, or in conjunction with doing so, Biden should endorse one of the many federal legislative proposals to deschedule cannabis. There are some good ones. See:

Recall that Biden’s VP, Kamala Harris, was Senate sponsor of the MORE Act. That one would deschedule cannabis, among a host of other provisions. Come on, man!

Biden still hasn’t come around on federal legislation, and it appears that his message to Governors had little effect. Yes, the Oregon governor erased some 47,144 convictions the following month, but that was in the works already. The Idaho governor, on the other hand, issued a predictably annoying response to Biden’s request. In all, we haven’t seen much movement here, and nothing one could tie directly to Biden’s “follow me” missive.

  1. October 22 request to Health and Human Services (HHS)

This is the big one, and the reason people are split as to Biden’s cannabis doings. After Biden requested that HHS review the scheduling of marijuana under federal law, the Department recommended to the Drug Enforcement Administration (DEA) that it should reschedule marijuana, down to Schedule III. I analyzed what a move to Schedule III would generally mean here.

The HHS recommendation occurred in late August, 2023. What DEA ends up doing here is far from certain, and things seem to be moving pretty slowly. All of that was expected: our colleague Shane Pennington, an authority on the sausage-making process, recently opined that any status change probably won’t occur until after the fall elections. What Biden did here may ultimately be helpful, but certainly not as helpful as possible. Biden passed the buck, putting us on an uncertain, circuitous path.

  1. December 2023 pardons and clemency grants

This proclamation came in over the holidays, probably to mitigate any controversy. Not that it seems terribly controversial. The December action pardoned convictions for simple possession and use on federal lands. It seems designed to fill in some gaps from the October 2022 pardons, though it doesn’t extend to military convictions, which is odd: affording the same small grace to military personnel as common civilians seems like a no-brainer.

Biden separately commuted the sentences of 11 Americans who were serving “unduly long sentences” with respect to non-violent offenses related to other drugs. That one was helpful and should have a more profound impact on the lives of those few individuals.

Conclusion

Biden has come a long way on cannabis over the decades, even if he hasn’t smoked any weed–as suggested by a primary challenger. However, the President had a chance to do momentous things without much effort. Instead, he has chosen what he probably thinks is a middle path, and simply ignored certain issues issues like the scourge of “gas station weed” from hemp. Overall, I don’t think Biden’s actions are consistent with his promises.

After his October 2022 efforts, I wrote:

On the campaign trail, Joe Biden pledged to “decriminalize the use of cannabis and automatically expunge all prior cannabis use convictions.” That promise sits moldering right here on the “Black America” page of his website. Biden has done nothing. During the first year of his presidency, it seems likely that 300,000 (or more) Americans have been arrested and convicted of simple possession of marijuana. Penalties range from low-level misdemeanors to life imprisonment without parole in extreme cases.

The link to Biden’s website page referenced above is now removed: instead you’ll be asked to donate to the 2024 effort if you deign to click through. Feel free to do that if you’re fine with half measures cannabis, from ongoing criminalization to an administrative scrum which may or may not lead to Schedule III.

So I’m sticking with the “C” grade for President Biden. Stay tuned for coverage of the other party’s candidates…. Should be fun.

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Psilocibina de Oregón: Estado del Estado (2023) https://harris-sliwoski.com/psychlawblog/oregon-psilocybin-state-of-the-state-2023/ Fri, 22 Dec 2023 15:00:47 +0000 https://harris-sliwoski.com/?post_type=psychlawblog&p=134098 It’s hard to believe that we are wrapping up the first year of the Oregon Psilocybin Services (OPS) program. Final rules were released at this time last year, following a protracted, two-year development period. The application window for licenses opened timely on January 2, 2023, and the Oregon Health Authority (OHA) continues to administer this

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It’s hard to believe that we are wrapping up the first year of the Oregon Psilocybin Services (OPS) program. Final rules were released at this time last year, following a protracted, two-year development period. The application window for licenses opened timely on January 2, 2023, and the Oregon Health Authority (OHA) continues to administer this novel program ably. Kudos to them for pulling it off.

The program is small, but growing

Early this year, I published an article that received a lot of attention titled “Oregon Psilocybin: Slow Start.” In that piece, I reported that as of January 23, OHA had received:

  • 4 manufacturer license applications
  • 3 service center license applications
  • 1 testing lab license application
  • 0 facilitator license applications
  • 92 worker permit applications
  • 19+/- approved training programs

That was hardly the land rush many had expected, and a far cry from what Oregon experienced with cannabis licensing back in the day. Throughout the year, though, numbers ticked up gradually. Here are licensing stats from the December 18, 2023 OPS Applications report:

Submitted Approved
Manufacturer 21 7
Service Center 36 20
Testing Lab 3 2
Facilitator 260 201
Worker Permit 616 406
Training Program 26 24

 

Not too shabby. Most of the manufacturers, service centers and related economic activity are concentrated along the I-5 corridor, from Portland down to Eugene. There are pockets of limited activity in Jefferson County (down south), Deschutes County (central) and sparsely populated cities and counties that likewise decided not to shun the program.

The rules are changing, a bit

I’ve been somewhat critical of the OPS program structure going back to the advent of Measure 109, often calling the OPS program “cumbersome” and such. And it is. An unfortunate corollary of this has been high costs for clients (who are mostly out-of-staters), and related access issues. That said, the program is what it is at this point, and some service centers offer “sliding fee” schedules and such. OPS also makes license applicants create a social equity plan (yes, they actually read them). It’s a great aspiration, but ultimately a specious exercise for some of these folks. Finally, OHA is on record stating that expanding access to psilocybin services is a priority in 2024.

We have written exhaustively about the OPS rules on this blog, so I’m not going to rehash things here. We did see new rules proposed in late October on training, data collection and technical fixes to the OPS program. Emerge Law Group published helpful commentary on all of that here. For now, I’d say that technical fixes are always a thing in controlled substances programs; the draft training rules are straightforward; and the data collection rules stem from Senate Bill 303, a client data collection law I ragged on this summer. A series of public hearings on all of this commenced in November, and the permanent rules should land any day now.

We’ll see what happens, if anything, in the 2024 Oregon legislative session. Yesterday, I wrote on our sister Canna Law Blog that I expect much of the “controlled substances” oxygen to be sucked up by Measure 110 (drug decriminalization) considerations. For that reason alone, I don’t expect heavy tinkering with the OPS program in 2024. Let’s see.

Finally, it’s worth noting that 2024 will be the second and final year of the “50% or more residency requirement” for ownership of a licensed Oregon psilocybin business. Assuming the legislature doesn’t decide to mess with this, we would welcome this sunset. People who want in are getting in, regardless.

The Feds

It’s been nice and quiet with respect to federal law enforcement and the OPS program. I wrote a short piece on the VISIONS Act this fall, a prophylactic federal bill to constrain policing of OPS compliant actors. In that piece, noted that:

…the Oregon Health Authority (OHA) was scheduled to contact local U.S. Attorneys last year, to facilitate a conversation on this very topic. OHA informs me that they did, in fact, reach out, but the response was subdued– essentially just confirmation from DOJ that it is aware of the state’s psilocybin program. No developments since then.

I haven’t followed up with OHA on the topic since late September, but I assume if something were afoot, we’d hear about it. Let’s see what happens in the 2024 elections and everything else; but for now this program seems of little interest to the feds. That status quo would be supported by continued smooth sailing from a public health and safety perspective in the OPS program next year. So far, reports of adverse events are vanishingly few among the 700+ consenting adults who have tried this beta program.

Oregon psilocybin 2023: That’s a wrap

Let me know in the comments if you think I missed anything worth mentioning, or shoot me an email. I’m sure there’s something. And let’s hope for good things at OPS in 2024.

In the meantime, for more on all things Oregon and psilocybin, including expansive coverage of OHA rules and program developments, check out our 50 post archive here. For information relevant to starting a psilocybin business in Oregon, check out these specific posts:

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Cannabis en Oregón: Estado del Estado (2023) https://harris-sliwoski.com/cannalawblog/oregon-cannabis-state-of-the-state-2023/ Thu, 21 Dec 2023 15:00:32 +0000 https://harris-sliwoski.com/?post_type=cannalawblog&p=134085 Welcome to the eighth annual “State of the State” post on Oregon cannabis. Last year was memorable for Oregon the industry, pockmarked by OLCC scandal, heavy regulatory swings, and even marquee litigation. We also saw the state’s first very-large-business failure, more trade association consolidation, and other altibajos as my mother-in-law might say. Let’s go! Sales

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Welcome to the eighth annual “State of the State” post on Oregon cannabis. Last year was memorable for Oregon the industry, pockmarked by OLCC scandal, heavy regulatory swings, and even marquee litigation. We also saw the state’s first very-large-business failure, more trade association consolidation, and other altibajos as my mother-in-law might say. Let’s go!

Sales fell (again) along with licensee numbers (first time)

According to OLCC data, retail sales between January 1, 2023 and November 30, 2023 clocked in at $874 million. By my math, the state is on pace for roughly $953 million this year. That tally would be a 4.1% decrease from $994 million in 2022, which itself was the first calendar year cannabis sales contracted in Oregon. Someone with better credentials than me could ascertain whether this year’s drop is due to pricing decreases, volume decreases, or both, alongside whatever other factors (like population shrinkage). Overall, a 4.1% decline isn’t great news for industry, but it’s not terrible. The very large, unregulated Southern Oregon market continues unfettered.

Nearly half, or 48.7%, of OLCC retail sales are “useable marijuana” (dried leaves and flower). The concentrates/extracts category sits at 24.7%; edibles/tinctures are 13.7%; inhalable products with “non-cannabis additives” are 7%; “other” is 5.2%; and industrial hemp products bring up the rear at 0.7%. This follows a years-long trend of usable marijuana sales decreasing per capita in favor of other categories. Like last year, my impression is that near-term growth may be limited to select SKUs and product categories.

In addition to decreased volume, prices remain low; but not as bad as last year. At this time in 2022, wholesale useable marijuana had been sitting at $600/lb for months, bottoming out at $550/lb for December. For the most recent three months of 2023, we’ve hovered at a respectable $745/lb. That said, the full effects of the Croptober harvest haven’t rippled through the system. This year’s harvest came in at an unwelcome 15% higher than 2022.

To the plus, we have slightly fewer licensees vying for market share than a year ago today. It’s not a big drop, but this was the first year I saw license numbers fall since the 2016 roll-out of the adult use program. Despite the number of “pending” license applications below, you can expect the number to flatline or fall a bit again next year. Yes, the HB 4016 licensing moratorium sunsets on March 31, 2024, but I’m guessing our legislators will pass an extension bill early in the 2024 session. Let’s see.

2022 2023 2023 (active + pending)
Producers 1,408 1,389 1,520
Processors 331 312 363
Wholesalers 276 269 299
Retailers 827 818 881
Labs 19 15 15
Research 1 1 4

 

Industry is in the doldrums, with one spectacular flameout

Last year at this time, I wrote that “quite a few businesses are struggling and others have failed.” Same deal today. All throughout the year, we helped people sell (and try to sell) businesses we had helped them buy just a couple of years ago. It feels like the largest number of “business sales” are little asset purchase agreements for naked licenses. We’ve also helped quite a few clients throw in the towel, and our litigation team continues to assist in a series of disputes related to business dysfunction—for those who can actually afford to litigate.

Nothing better exemplified the weak state of the Oregon market than the Chalice receivership sale (see: Chalice Receivership Update: Weak Market, Insiders Pounce). Interest was scant, offers were few, and ultimately 20+ businesses sold for a mere $3 million. Last year at this time, I observed that Chalice was one of the largest operators in Oregon, trailing only Nectar Markets. Today, in one of the biggest Oregon cannabis stories of 2023, the Canadian heavy has gone belly up, to the detriment of stiffed creditors and hapless employees.

Tough year for OLCC

If one state agency should be happy to leave 2023 behind, it’s got to be OLCC. I explained in an earlier post that OLCC and the cannabis industry were “at a nadir with two-bit scandals” this spring. Stellar investigative reporting around OLCC’s handling of the La Mota chain caused the Oregon Secretary of State to resign, but also lead to some unfortunate, reactionary rules for the cannabis industry (more on that below). Separately, the OLCC’s Executive Director resigned as well, in the context of separate misconduct.

Most recently, the Commission got some good news in that the former Secretary of State’s cannabis program audit will stand, albeit with a disclaimer. This should help turn the page on a difficult chapter for pretty much everyone, and give the Commission room to maneuver. As an aside, one former OLCC official commented that the audit “reads like a Leafly blog”, due to its general and specific recommendations to loosen regulatory strictures. Industry favored those findings obviously, so it’s a shame the process was tarred.

In my view, however, a key issue with OLCC remains unaddressed, and that is the Commission’s disparate treatment of large and small cannabis companies (see: The Real OLCC Scandal is that There are Two Sets of Rules). OLCC has allowed the largest Oregon cannabis retailers to coast after citing them for significant and repeated violations– including allegations of cannabis diversion. Small businesses get their tickets punched for less. In all, I see scant rhyme or reason to OLCC’s erratic enforcement efforts.

New rules, highlighted by tax compliance (forever) and aspergillus testing (for a minute)

The Oregon regulatory landscape is ever changing. We had new rules to kick off the year, followed by new laws passed in Salem. Rulemaking commenced throughout the fall per usual. The biggest change, however, was the advent of “emergency” (and now permanent) tax compliance rules that arose from the La Mota scandal referenced above. All retailers and their “applicant” owners (but not producers or processors or wholesalers) are now required to certify tax compliance with OLCC via the Oregon Department of Revenue, to renew or transfer a marijuana license. Here in the office, we’ve seen the rules impact quite a few renewals and sales already.

Another huge story in Oregon cannabis for 2023 involves a rule that came and went, regarding aspergillus testing. In March, the Oregon Health Authority (OHA) promulgated a rule that required marijuana testing for certain microbiological contaminants, including aspergillus. The Cannabis Industry Alliance (CIAO) and others filed a motion for emergency relief. These parties won a temporary “stay of enforcement” of the rule, pending completion of judicial review. Rather than defend the rule at a subsequent hearing, OHA withdrew it. And doesn’t appear to want a second bite at the apple.

This is a great result for our cannabis producer clients, at least in the short term. I admittedly did not think they could win. Whether it’s a good long-term play remains to be seen. Oregon producers have long pushed for cannabis export rights— which conceivably could happen sooner rather than later if federal law changes. (See: Audit: Marijuana-rich Oregon must prep for US legalization.) This is salient due to the fact that most states require aspergillus testing for cannabis. It’s hard to imagine a scenario where those states agree to accept Oregon cannabis “contaminated” with aspergillus.

Trade organizations merged

Finally, we have just one major trade organization in Oregon cannabis. Prior to October, the Oregon Cannabis Association (OCA) and the Cannabis Industry Alliance of Oregon (CIAO) existed side by side. Quite a few others have come and gone over the years. Now, it’s all CIAO. Judging by all the emails I’m getting, the big-tent outfit is energized.

The first big task for CIAO should arise in the 2024 legislative session. The Oregon legislature seems less keen on dealing with cannabis issues over the past few sessions, than historically. Given collateral damage to OCA from the La Mota scandal and all of the oxygen being taken up by Measure 110 scrutiny, CIAO will have its work cut out come February.

Hollowed out hemp

Oregon has only issued 187 hemp grower licenses as of December 7. This is a noteworthy drop from 294 licenses in 2022, to say nothing of the 1,961 licenses issued in the heyday of 2019. In spite of it all, Oregon is still a hemp leader on the national stage, somehow, per the 2023 National Hemp Report.

Last year I wrote:

the continued downward trend can’t last forever. Congress is scheduled to renew the Farm Bill in 2023. Changes on the table include everything from raising the “hemp threshold” from 0.3% THC to 1.0% THC, to addressing regulation of intoxicating cannabinoids derived from hemp. Another big driver will be the continued adoption of hemp-based textiles and building materials. Even though Oregon hemp has slowed dramatically, expect the state to remain at the fore if and when the trend reverses.

All of that is probably still true, except that Congress missed its deadline and we may not see a renewal of the Farm Bill until late in 2024. In the meantime, I and many others have been asking, “What Happed to Hemp”?

Odds and ends

We’ve seen some noteworthy activity around the edges, locally, which I’d be remiss to leave off:

  • Longtime cannabis champion, Earl Blumenauer, announced his coming retirement as an Oregon congressional representative. We’re going to miss him.
  • Scotts closed four cannabis supply warehouses in and around the Portland metro.
  • Curaleaf gave up on Oregon (and Colorado and California).
  • The dormant commerce clause lawsuit filed by our colleague Andrew DeWeese inched slowly forward, with a hearing now set for January 2024. Good luck Andrew!
  • Left Coast Financial Solutions, a shady money-services startup serving the industry, had its license suspended by the State Division of Financial Regulation.
  • Oregon’s cannabis sales tax revenues dropped in conjunction with falling sales, and continued diverting in part to deficient Measure 110 programs.

Oregon cannabis: that’s a wrap

Let me know in the comments if you think I missed anything worth mentioning, or shoot me an email. There is always something. In the meantime, here’s hoping for better times for Oregon cannabis in 2024.

For previous posts in this series, check out the following:

Need Help With Oregon Cannabis Law?

Contact Us

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Las empresas de cannabis y los mercados OTC https://harris-sliwoski.com/cannalawblog/cannabis-companies-and-the-otc-markets/ mié, 06 dic 2023 15:00:38 +0000 https://harris-sliwoski.com/?post_type=cannalawblog&p=133909 I stumbled upon this recent post by Jason Paltrowitz titled “Lawful but Awful: The Small Cap IPO Cycle.” It contains some interesting findings and I like everything about it for cannabis companies, except the conclusion. The conclusion is that OTCQX and OTCQB markets are a good alternative to senior U.S. exchanges for small companies. The

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I stumbled upon this recent post by Jason Paltrowitz titled “Lawful but Awful: The Small Cap IPO Cycle.” It contains some interesting findings and I like everything about it for cannabis companies, except the conclusion. The conclusion is that OTCQX and OTCQB markets are a good alternative to senior U.S. exchanges for small companies. The argument is that OTC markets “offer a simplified path with financial, corporate governance, and disclosure requirements tailored to smaller companies.”

Plant-touching U.S. cannabis companies cannot list on the senior U.S. exchanges, meaning the NYSE or Nasdaq. Still, many U.S. cannabis companies that want to raise significant capital choose to “go public.” The well-worn path is either to: 1) list in Canada or overseas, via reverse merger, or 2) head to the abovementioned OTC markets, again via reverse merger, and pursue a Regulation A offering. However, in my experience, the OTCQX and OTCQB are not good places for cannabis companies.

OTC markets are teed up for fraud

Don’t take my word for it: here’s an SEC bulletin updated earlier this year and another in the specific context of cannabis stocks– going back to 2014. Here too is a FINRA warning, a sample DOJ microcap cannabis prosecution, and an FBI case study. As you might infer, sad stories related to OTC scams abound. This is because the OTC sandbox is a huckster’s paradise, due to the susceptibility of OTC stocks to dramatic price swings and the low level of required disclosures.

Now, one could argue that none of this is necessarily bad for OTC cannabis companies: instead, it’s bad for the people who invest in them. That’s not exactly right. An OTC cannabis company, along with its management, has fiduciary and governance-related obligations to investors. Public companies are no different than private firms in that respect. In all, the level of exposure for a cannabis company grows commensurate to the amount of capital it raises, as well as how it goes about the raise.

OTC market deals are weird

I have been in and around a sizable number of OTC cannabis company listings at this point. They’re weird. In many cases, a cannabis company will be approached by an M&A advisor and/or investment banker affiliated with an OTC company. These individuals may propose a reverse merger, whereby the cannabis company delivers all of its shares (sometimes through a newly created entity) to the OTC shell, in exchange for shares in that shell. At closing, the cannabis company owners receive some combination of common and preferred shares, and maybe even warrants, in the OTC company.

In many cases, cursory diligence on the OTC company throws off obvious red flags. I’ve seen proposals where the shares offered to the uplisting owners exceed the issuable securities shown for the OTC firm. I’ve seen many OTC company shells with EDGAR information severely at odds with private disclosures. Some of these matters are deferred maintenance, to be addressed with counsel in service of a proposed transaction. Others are landmines and may be intractable.

More discomfiting than any of this, however, is the common situation where an OTC promoter approaches a cannabis business with no idea – or interest, apparently – in whether the cannabis company is even viable. The promoter will want to agree to binding terms having done no diligence on the target. Friends, if the most considered aspect of a proposed deal is the warrants a promoter gets on signing, you’re probably looking at a pump-and-dump scheme.

You may lose control on the OTC market, gaining only headaches

In an OTC listing the cannabis company “trades up” for an opportunity to be listed on a public exchange and to raise money through that vehicle. Ownership must weigh the probability of successful fundraising against the control yielded to other parties. Those parties may include legacy preferred shareholders, in addition to newly appointed directors and officers, and promoters bringing the deal.

Sometimes (not always), yielding control is required for cannabis company growth. Assuming obstacles like residency requirements are navigable in the new structure, it’s important for the uplisting owners to consider what it would mean to own a smaller piece of a potentially larger pie. This is not just a question of economics, but also decision-making. If the owners lose the ability to direct the company in any sense beyond daily operations, they may determine the prospect of additional capital isn’t so attractive.

This may feel frustratingly obvious after the closing of an uplist transaction. A standard scenario sees the OTC stock spike, dive and inevitably flatline. At that point, uplisting owners will be left wondering why they went to all the trouble. If you lose control of your company only to make some money for stock promoters, then you’ve really lost.

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